In last month’s issue I wrote that George Osborne had delivered a budget with one eye on next year’s election by giving significant help to savers, particularly those who save in a tax efficient pension. This month I thought it would be worth looking at the outlook for those of you who save in non-cash investments given the improving economic news that has come out recently.
Regional and sector performance is expected to vary in relation to a bullish equities market. Investors are expected to increasingly shift their focus away from market liquidity to company fundamentals following the US Federal Reserve’s announcement last September that it is preparing to taper QE. Companies will have to step up their game and earnings will have to pick up if equities are to come close to matching the rally seen in developed markets during 2013.
While the UK economy is still smaller than it was pre-crisis, there was some very encouraging data in 2013 and GDP growth could be in the region of 2% this year. Unemployment has been falling faster than the Bank of England expectations. The problem is that the positive data has not necessarily translated into domestic profits thus far. On the upside, there has been a pickup in IPO activity and the expected improved economic backdrop should further drive corporate confidence and activity in 2014. Analysts forecast that the best returns are likely to come from industrials and the consumer discretionary sector, with consumption (and housing) having driven the economic recovery to date.
2014 is likely to be a year of transition for bonds. The expectation of QE tapering has already led to the end of the bond market rally, although analysts say there is no evidence for a rotation out of the asset class as demand from pension funds and banks remains. In sovereign markets, yields are expected to move gradually upwards, with the 10-year US treasury yield at around 3.5% by the end of 2014. While we may not witness a return to the historic norms just yet, the gap between equity and bond yields should slowly start to normalise, so the ‘risk-on’ stance that has worked well for investors during the last few years should become less glaring in 2014.
Emerging markets are a mixed bag and a potential wildcard in 2014. The announcement of QE tapering has caused significant headwinds in fixed income assets and concerns over currency volatility and current account deficits remain. In addition, GDP growth in countries such as Brazil is unlikely to look spectacular compared to the developed world.
If you would like further insight into the world of investments, call one of our helpful consultants, Jon Melvill on the number below.
The value of investments and income from them may go down. You may not get back the original amount invested. Changes in the rates of exchange between currencies may cause your investment and any income from it to fluctuate in value.
Lyndhurst Financial Management Limited
Authorised and Regulated by the Financial Conduct Authority